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December 12, 2013
Tax History: Is the VAT a Career Killer for Politicians?
Joseph J. Thorndike

Full Text Published by Tax AnalystsTM

Are you a politician with a death wish? Then introduce a VAT -- it's the surest (if maybe not the most painless) method of political suicide.

At least that's the conventional wisdom, and poll data seem to bear it out. For instance, in a 2010 survey, 63 percent of respondents rejected the VAT as a means of shrinking the federal budget deficit.1 That's a lot of voters to antagonize.

More to the point, history seems to confirm that the VAT is a career killer. The usual example is Al Ullman, former chair of the House Ways and Means Committee, who proposed a VAT in 1979 and lost his seat representing Oregon's 2nd Congressional District the following year. The causal connection was obvious, at least to many observers. "His political courage was unassailable," recalled the Eugene Register-Guard in 1986. "Despite Oregon's long hostility toward a sales tax, Ullman stuck with his support of the VAT, a form of sales tax, even in an election year." The paper concluded that ultimately that support probably lost Ullman the election.2

Over the years, Ullman's defeat has continued to serve as a cautionary tale for politicians. "The 'sales tax' label can be lethal," wrote columnist Al Hunt in 2009. "Consumption levies are usually regressive, hurting middle class and poorer people the most, and almost three decades later there remains a belief that espousing such a measure cost the former House Ways and Means Committee Chairman Al Ullman, now deceased, his supposedly safe seat in 1980."3

The belief may remain, but is it accurate? Not everyone thinks so. "The political lore is that Ullman lost his seat because of his VAT proposal," wrote Alan Schenk in the Tax Analysts VAT Reader. "But there were other reasons why Ullman lost the race. His only residence in Oregon was a hotel room, a fact exploited by his opponent. Also, because of a war injury, Ullman was unable to campaign as actively as was necessary."4

Budget expert Pete Davis agreed, dismissing the ostensible lesson of Ullman's defeat as "an old saw." The VAT certainly didn't help, but other factors were more important, wrote Davis. "He really lost because he rarely went home to his district, because he got caught in the Reagan landslide, and because Jimmy Carter conceded the election 70 minutes before the West Coast polls closed."5

The Ullman story deserves a second look, if only to shed some light on its ostensible lessons for today's politicians.

Hard Truths

When Ullman won his first race for the House in 1960, he was regarded as a solid liberal -- which only made his victory more surprising, because his district was historically conservative. Once in Congress, Ullman solidified his left-leaning credentials, earning a 100 percent rating from Americans for Democratic Action (ADA) in 1961.6

But as the years passed, Ullman's politics seemed to creep to the right. By the early 1970s, his ADA rating had fallen to just 52 percent. In a 1974 interview with People magazine (taxwriters still had celebrity status back then), Ullman insisted he was "still as liberal as I ever was." But he was careful to describe himself as a "responsible liberal" -- as opposed, presumably, to some of his irresponsible party colleagues.7

Ullman fancied himself a teller of hard truths. The country was facing serious economic problems, and solutions would be unavoidably painful, he said. "People keep reaching for easy answers . . . but we're not going to muddle our way out of this. There are only hard answers, and the American people will accept them."

But if Ullman was a tough guy when it came to policy, he was a softy as committee chair. "His permissive leadership style as Chairman took its direction from a nation suspicious of powerful leaders," says the official Ways and Means page devoted to Ullman. "Encouraging openness and participation in Committee dealings, he delegated authority to the Chairmen of six permanent subcommittees. Such actions, and an expansion of the Committee, intensified partisanship."8

Of course, partisanship was on the rise during the 1970s anyway, so Ullman's permissive style was probably more a symptom than cause of the committee's descent into bickering. And committee chairs were losing power throughout Congress in the wake of the Watergate scandal, suggesting that Ullman may have had little choice but to loosen the reins of power.

Still, Ullman seemed to welcome the new, looser atmosphere in Congress. "I see my role as altogether different than chairmen used to see theirs," he said in 1978. "They were worried about image and not losing any bills and not bringing a bill to the floor unless they had all the votes in their pockets. You can't operate that way anymore. I see my role as one of leadership and trying to expand the thinking of Congress in new directions in order to meet the long-term needs of the country."9

Ullman claimed to love his new job. "I've been asked to run for the Senate several times, but I've never been tempted," he insisted. "Once I got on the Ways and Means Committee I was totally consumed in making it my career. On a committee like that, every four years you get the equivalent of a college education."10

VAT Proposal

Ullman's education at Ways and Means apparently included a course on consumption taxes, because he came to believe deeply in their relative efficiency. He put ideas into action by introducing the Tax Restructuring Act of 1979.11 The bill, introduced in late October, featured $130 billion in cuts to existing taxes, offset by $130 billion in new revenue from a federal VAT.

The sluggish economy of the late 1970s needed a shot in the arm, and tax cuts were just what the doctor ordered, Ullman argued.12 Specifically, he suggested:


    1. a $52 billion cut in Social Security payroll taxes, with rates dropping from 6.65 percent to 4.5 percent for both workers and employers;

    2. a $50 billion cut in personal income taxes, with credits for the poor and elderly and various investment incentives; and

    3. a $28 billion cut in corporate income taxes, with the top rate dropping from 46 percent to 36 percent, as well as "substantial depreciation reform."


Ullman claimed those tax cuts would bolster the economy while answering voter demands. "Washington received the message of Proposition 13," he wrote in an op-ed for the Los Angeles Times. "We understand the national demand for fiscal discipline and a balanced budget."13

Of course, fiscal discipline demanded that tax cuts be paid for, and Ullman proposed a 10 percent VAT to replace lost revenue. To ease the pain, he allowed a special 5 percent rate on "vital human necessities such as food, housing and medical costs." He also gave preferential treatment to mass transit, tuition, and charities.

Ullman was under no delusions about the pain his new tax would cause. But he believed it was still the best way to deal with surging inflation, which was then pushing into the low double digits. "This is harsh medicine . . . but the problem of inflation is just as harsh. Until we check our urge to consume -- rather than save and invest -- inflation will continue to sap our strength to produce and compete."14

Electoral Defeat

Ullman was not alone in his support for a VAT -- in fact, Senate Finance Committee Chair Russell Long floated the idea in 1978, albeit in more general terms.15 But Ullman's bill failed to get broad support, and it went nowhere. Undeterred, he courted disaster by reintroducing it the following year, despite the looming election.

Ullman's seat in Congress was considered a safe one; as one observer quipped, he was "responsible for more landslides in this part of the country than Mt. St. Helens."16 But in 1980, he faced a young and well-financed GOP opponent. Described by reporters as an "ultraconservative," Denny Smith made Ronald Reagan look like a liberal. But policy and politics made Ullman vulnerable in that watershed year. And Smith mounted a strong campaign.

Smith attacked Ullman for his VAT proposal, forcing the congressman to backpedal furiously. Ullman abandoned his plan and sang a loud, if somewhat grudging, mea culpa. Such was the price of intellectual leadership, he complained to a reporter: "You get your head a little above the ground, and you get the hell clobbered out of you."17

Ultimately, however, Ullman blamed his tough race on broader trends. "There's a general revolt against people in office," he said. "I don't think this mood is related to specific issues. It's manifested itself around the country. It's really an anti-incumbency vote."18

Observers agreed. "To watch the chairman of the House Ways and Means Committee pursuing voters down a supermarket aisle, patting babies and lunching on a tamale at a senior citizens center is to appreciate the scare that voters are giving their congressional leaders this year," reported Helen Dewar of The Washington Post.19

Ullman's efforts, while vigorous, were unequal to the task. As Monica Prasad concludes in her new book, The Land of Too Much, it was too little, too late. "Ullman was swept away in the anti-incumbent tide of 1980, dampening congressional willingness to experiment with a VAT in future years."20

Does the Truth Matter?

But why did Ullman lose? Was it really about the VAT? Or did he simply get caught up in Reagan's victory? A little of both, no doubt. But Ullman's worst political sin, judging from the press coverage of his campaign, was more prosaic. Smith branded his opponent an out-of-touch Washington insider -- a stranger in his own district. The VAT was part of that argument, with Smith insisting that Ullman should have known better than to propose a VAT when sales taxes were so deeply and consistently unpopular among Oregon voters.

But the real heart of Smith's attack focused on Ullman's physical absence from the district. The chair no longer owned a home in Oregon, and Smith hammered home this fact in ads. "It would be nice to have a congressman who likes to live here," concluded one of his most effective TV spots.21

(Allegations of carpetbagging seem to be a recurring theme of Oregon politics: Bob Packwood, who represented Oregon in the Senate from 1969 to 1995, used a mobile home as his official address in the state, while generally staying in hotels during visits "home."22 Likewise, current Sen. Ron Wyden raised eyebrows a few years ago when he put his Portland condo up for sale.23)

At the end of the day, Ullman seems to have succumbed to hubris as much as anything. Like so many elected officials before and since, he took his seat for granted. Sometimes that kind of arrogance doesn't matter, at least in the short run. But voters have a way of humbling lawmakers who neglect their districts.

Ultimately, however, the VAT-centric myth of Ullman's defeat -- and the pall it has cast over similar proposals ever since -- may be more important than mundane, if more accurate, explanations for his electoral demise. The VAT may not have killed Ullman's career, but plenty of politicians think it did.

In Taxation and Democracy, political scientist Sven Steinmo offered a telling anecdote. Several years after Ullman went down, "a Republican member of the Ways and Means Committee confided that he genuinely felt a VAT is the only possible alternative to solving the United States' fiscal deficit. When asked why he would not say this publicly, he responded, 'Are you kidding me? Nobody wants to get the Al Ullman syndrome.'"

And why would they? Apparently it's fatal.


FOOTNOTES

1 NBC News/Wall Street Journal poll, Aug. 2010.

2 "Al Ullman, 1914-1986," Eugene Register Guard, Oct. 14, 1986, available at http://news.google.com/newspapers?id=otwzAAAAIBAJ&sjid=hOEDAAAAIBAJ&pg=3452%2C3429634.

3 Hunt, "Obama Can't Avoid Taxes in Fixing Fiscal Mess," Bloomberg View, July 12, 2009, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZNm7OHHkd60.

4 Schenk, "Prior U.S. Flirtations With VAT," The VAT Reader, Tax Analysts, 2011, pp. 52-63.

5 Davis, "Not a Value Added Tax!!!" Capital Gains and Games, Oct. 12, 2009, available at http://capitalgainsandgames.com/blog/pete-davis/1166/not-value-added-tax.

6 "Al Ullman Exchanges Patience for Power as He Replaces Wilbur Mills," People, Dec. 23, 1974, available at http://www.people.com/people/archive/article/0,,20064788,00.html.

7 Id.

8 House Ways and Means Committee, undated, available at http://waysandmeans.house.gov/legacy/portraits/1899-2000/ullman.htm.

9 Sven Steinmo, Taxation and Democracy: Swedish, British, and American Approaches to Financing the Modern State 143 (1993).

10 "Al Ullman Exchanges Patience for Power as He Replaces Wilbur Mills," supra note 6.

11 See http://thomas.loc.gov/cgi-bin/bdquery/D?d096:15:./temp/~bdC0k9:@@@L&summ2=m&

12 Ullman, "The Value-Added Tax: New 'Answer,'" Los Angeles Times, Nov. 16, 1979.

13 Id.

14 Id.

15 W. Elliot Brownlee, Federal Taxation in America: A Short History 138 (2d ed. 2004).

16 Prasad, The Land of Too Much: American Abundance and the Paradox of Poverty 121 (2012).

17 Dewar, "Chief House Tax-Writer, Labeled 'Absentee,' Runs Home for His Life," The Washington Post, Oct. 18, 1980, at A2.

18 Steve Neal, "House Power Ullman Faces Uphill Race," Chicago Tribune, Aug. 27, 1980, at 1.

19 Dewar, supra note 17.

20 Prasad, supra note 16.

21 Dewar, supra note 17.

22 Jeff Mapes, "Sen. Ron Wyden's Portland Condo for Sale; Defends Residency," The Oregonian, Mar. 29, 2011, available at http://blog.oregonlive.com/mapesonpolitics/2011/03/sen_ron_wydens_portland_condo.html.

23 Jack Bogdanski, "Wyden Selling His Portland Condo," Mar. 29, 2011, available at http://bojack.org/2011/03/wyden_selling_his_portland_con.html.


END OF FOOTNOTES